Tax Type
Individual Income Tax
Description
In general; Interest income of nonresident
Topic
Taxable Income
Date Issued
09-13-1994
September 13, 1994
Re: Request for Ruling: Individual Income Tax
Dear********
This will reply to your letter concerning the application of tax on interest income your nonresident client (the "Taxpayer") receives on the installment payments of a mortgage secured by Virginia realty.
FACTS
The Taxpayer, a former Virginia resident, sold a personal residence under an installment sale agreement at an amount equal to her basis in the property. The Taxpayer did not realize a gain on the sale. The note is secured by the real estate which was the subject of the sale. The interest income on the mortgage note is reportable to the Federal government and to the Taxpayer's current state of residence. The Taxpayer requests a ruling on whether the interest represents Virginia source income for purposes of filing a Virginia Non-Resident income tax return.
RULING
Va. Code §58.1-325(A) provides that the taxable income of a nonresident individual is determined based on the percentage of the Virginia source income to the income from all sources. Although the gain from the sale of Virginia realty is subject to Virginia taxation, interest income derived from a mortgage note secured by real property located in Virginia is considered to be income received from an intangible asset, which is taxable by the state of domicile. If the noteholder is not domiciled in Virginia, the interest income is not subject to Virginia taxation. Since the Taxpayer is no longer a resident of Virginia, she will not be required to pay taxes to the Commonwealth on the interest income received despite the fact that the mortgage is secured by Virginia realty. Thus, the Taxpayer does not have to file a nonresident return with Virginia.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/752ON
Rulings of the Tax Commissioner